2/2/2014

TERM PAPER ON CURRENCY STABILITY OF

EURO(FRANCE) WITH REST OF THE WORLD
(GROUP-09)

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Submitted to:
Dr. M.Masud Rahman
Chairman
Department of Finance
University of Dhaka

Submitted By: Group 09

Sl. No.

Name

Roll No.

Country

Foroz Ali

BBA 15-044, MBA 532

Australia

Md Rakib

BBA 15-047, MBA 663

USA

Sultana Perven Prianka

BBA 15-048, MBA 658

Japan

Tahmina Akter

BBA 15-050, MBA 626

India

Date of Submission: February 02, 2014

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Letter of transmittal
February 02, 2014
Dr. M. Masud Rahman
Professor
Department of Finance
University of Dhaka

Dear Sir,
It is an honor and great pleasure for us to present our term paper on Currency stability of
Euro based country (France) with rest of the world. This term paper was assigned to us as
a partial requirement of the F-526: Foreign exchange risk and international risk
management course in MBA 1st semester.

Long project program is an experience of rediscovering our potentials and full of

excitements. This term paper accomplishment gave us an opportunity to apply our theoretical
expertise, sharpen our views, ideas, and communication skills, and bridge them with the real
world of practical experience, which will be a good head start for our future professional
career.

We hope you would find this term paper in appropriate manner. We appreciate your
cooperation and we hope you will call upon us with any queries occasioned by this case
study. Thanking you and looking forward to receive your cordial approval of our submission.

Sincerely yours

Md Rakib
ID No. 15-047
On behalf of Group No-09

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Acknowledgement

First of all we express our gratitude from heart to the Beneficent, the Merciful, & Almighty
Allah for giving us the strength and patience to prepare this report with the scheduled time.

In the different steps of preparing this term paper, we thank our course teacher for providing
us proper guidelines to prepare the assignment. We also thank him for assigning us such a
practical assignment that has boosted our knowledge from different aspects.

We are grateful to our classmates from whom we received cordial guidance, suggestions for
preparing this term paper. We are also very much grateful to our group members because
without their perseverance, exertion and hardworking, this case study will not be possible to
solve.

At last we thank officer-in-charge at Computer lab that provided us important tips in using
various computer applications, software in preparing term paper.

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Table of Content

Executive Summary . 06
Rationale of the study...07
Objective of the study........................................07
Scope of the study...07
Source of study..08
Limitation of the study08
European unification09
Relationship of Euro compared to other countries with US Dollars...12
The variables taken as independent variables are as follows...16

Regression analysis.18.
Conclusion.. ....... 26

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Executive Summary

Today many large countries are facing economic depression due to the currency
devaluation. Currency fluctuation may occur for different variables relative to one country
to other countries together. These factors are balance of trade, government control, or
imposition of tariff rate or import quota and other restriction, inflation, interest rate,
income level, political reason and such other factors. These factors vary from country to
country. In our term paper we have assigned to make an overview of currency stability of
Euro based country (France) with that of rest of the world..In our term paper we have tried
to show the Fance currency satiability with Australia, U.S, Japan and India. We have
identified some common factors- inflation, interest rate, tariff rate, GNI and of last ten
years of France and other respective countries.Through regression analysis we have
showed the significance level of the currency stability of France with other respective
countries variable.

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Rational of the Study

Foreign investment carries enormous significance in a developing country like
Bangladesh. Realizing the importance of foreign investment Bangladesh formulated its
first industrial investment policy in 1973, revised it again in 1974, 1975, and in 1978.
Foreign private investment (Promotion and protection) act, 1980 and the Bangladesh
Export Processing Zones authority act 1980 were enacted. To make the foreign
investment more attractive new industrial policy was announced in 1982
With the passage of time Bangladesh has reformed its regulatory structure in regard to
the FDI to open up the new avenue and to dislodge the compliances related to the FDI.
But the effort of this structural progress has back warded by sudden and unexpected
political influence and changes. The situation becomes worse one in the September
attack on US. Bangladesh had also severely affected by that unwanted changes in the
world scenario. Before going for in depth analysis the flow of FDI in Bangladesh we have
the privilege to have a look on the regional and worldwide flow of FDI in the recent
period.

Objective of the study:

This study is conducted with the objective to get an overall insight in the flow of FDI in
Bangladesh. The total objective is decomposed into several parts to get idea about the
factors affecting the flow of FDI. The specific objectives of this study are:
To give an insight into the theoretical issues relating to FDI
Role of MNC in FDI
The present situation of in FDI in Bangladesh.
To evaluate the status of FDI in Bangladesh
To identify the problem of FDI V & prescribe some issues for their solution.

Scope of the study:

The primary scope of this paper is to get acquainted with the flow of foreign direct
investment. The study will cover the scenario of FDI flow of previously 5 years in
Bangladesh. Comparative analysis of statement of sector wise distribution of FDI in
Bangladesh and sources of FDI has been presented. The findings will be strictly
structured upon the data provided by the Directorate of Board of Investment (BOI).

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Sources of Information:
i.

Primary data Source:

Primary data sources are used for preparing this project paper is the Board of
Investment (BOI), Bangladesh Bank &Bangladesh Burro of Statistics, Bangladesh Export
Processing Zone, etc.
ii. Secondary data Source:
Secondary data are collecting from various papers supplements like
1. The Financial Express,
2. The Daily Star, etc. newspapers,
3. Internet
4. Books are studied.
5. Exchange of views from different people also played a significant role to do the Study.

Limitations of the study:

Although we have tried to find and set the causes that determine the shape of the flow of
FDI on Bangladesh, we believe we are not at the best peak. We have relied extensively on
published data and other secondary sources to precede the report. But some of those
sources were not approachable and we lacked from data of that sources. In analyzing the
report we have presented some factors that determine the shape of the flow of FDI. But
these are not surely the only factors and many important factors may be omitted from the
analysis. And another thing is that the underlying factors are mostly in qualitative factors in
nature.

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European unification
Overview of the EU:
The European Union (EU) is a unification of 27 member states united to create a political and
economic community throughout Europe. Though the idea of the EU might sound simple at the
outset, the European Union has a rich history and a unique organization, both of which aid in its
current success and its ability to fulfill its mission for the 21st Century.
History
The precursor to the European Union was established after World War II in the late 1940s in an
effort to unite the countries of Europe and end the period of wars between neighboring countries.
These nations began to officially unite in 1949 with the Council of Europe. In 1950 the creation of the
European Coal and Steel Community expanded the cooperation. The six nations involved in this
initial treaty were Belgium, France, Germany, Italy, Luxembourg, and the Netherlands. Today these
countries are referred to as the "founding members." During the 1950s, the Cold War, protests and
divisions between Eastern Europe showed the need for further European unification. In order to do
this, the Treaty of Rome was signed on March 25, 1957, thus creating the European Economic
Community and allowing people and products to move throughout Europe. Throughout the decades
additional countries joined the community. In order to further unify Europe, the Single European Act
was signed in 1987 with the aim of eventually In creating a "single market" for trade. Europe was
further unified in 1989 with the elimination of the boundary between Eastern and Western Europe the Berlin Wall.
The Modern-Day EU
Throughout the 1990s, the "single market" idea allowed easier trade, more citizen interaction on
issues such as the environment and security, and easier travel through the different countries.
Even though the countries of Europe had various treaties in place prior to the early 1990s, this time is
generally recognized as the period when the modern day European Union arose due to the Treaty of
Maastricht on European Union which was signed on February 7, 1992 and put into action on
November 1, 1993.
The Treaty of Maastricht identified five goals designed to unify Europe in more ways than just
economically. The goals are:
1) To strengthen the democratic governing of participating nations.
2) To improve the efficiency of the nations.
3) To establish an economic and financial unification.
4) To develop the "Community social dimension."
5) To establish a security policy for involved nations.
In order to reach these goals, the Treaty of Maastricht has various policies dealing with issues such as
industry, education, and youth. In addition, the Treaty put a single European currency, the euro, in the
works to establish fiscal unification in 1999. In 2004 and 2007, the EU expanded, bringing the total
number of member states as of 2008 to 27.

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In December 2007, all of the member nations signed the Treaty of Lisbon in hopes of making the EU
more democratic and efficient to deal with climate change, national security, and sustainable
development.

How a Country Joins the EU:

For countries interested in joining the EU, there are several requirements that they must meet in
order to proceed to accession and become a member state.
The first requirement has to do with the political aspect. All countries in the EU are required to have a
government that guarantees democracy, human rights, and the rule of law, as well as protects the
rights of minorities.
In addition to these political areas, each country must have a market economy that is strong enough to
stand on its own within the competitive EU marketplace.
Finally, the candidate country must be willing to follow the objectives of the EU that deal politics, the
economy, and monetary issues. This also requires that they be prepared to be a part of the
administrative and judicial structures of the EU.
After it is believed that the candidate nation has met each of these requirements, the country is
screened, and if approved the Council of the European Union and the country draft a Treaty of
Accession which then goes to the European Commission and European Parliament ratification and
approval. If successful after this process, the nation is able to become a member state.

How the EU Works

With so many different nations participating, the governance of the EU is challenging, however, it is
a structure that continually changes to become the most effective for the conditions of the time.
Today, treaties and laws are created by the "institutional triangle" that is composed of the Council
representing national governments, the European Parliament representing the people, and the
European Commission that is responsible for holding up Europe's main interests. The Council is
formally called the Council of the European Union and is the main decision making body present.
There is also a Council President here and each member state takes a six month turn in the position.
In addition, the Council has the legislative power and decisions are made with a majority vote, a
qualified majority, or a unanimous vote from member state representatives. The European
Parliament is an elected body representing the citizens of the EU and participates in the legislative
process as well. These representative members are directly elected every five years.
Finally, the European Commission manages the EU with members that are appointed by the Council
for five year terms- usually one Commissioner from each member state. Its main job is to uphold the
common interest of the EU.
In addition to these three main divisions, the EU also has courts, committees, and banks which
participate on certain issues and aid in successful management.

Foreign Exchange rate indicators:

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When a countrys economy falters, consumer spending declines and trading sentiment for its
currency turns sour, leading to a decline in that countrys currency against other currencies with
stronger economies. On the other hand, a booming economy will lift the value of its currency, if
there is no government intervention to restrain it.
Consumer spending is influenced by a number of factors: the price of goods and services
(inflation), employment, interest rates, government initiatives, and so on. Here are some
economic factors you can follow to identify economic trends and their effect on currencies.

1. Interest Rates
"Benchmark" interest rates from central banks influence the retail rates financial institutions
charge customers to borrow money. For instance, if the economy is under-performing, central
banks may lower interest rates to make it cheaper to borrow; this often boosts consumer
spending, which may help expand the economy. To slow the rate of inflation in an overheated
economy, central banks raise the benchmark so borrowing is more expensive.
Interest rates are of particular concern to investors seeking a balance between yield returns and
safety of funds. When interest rates go up, so do yields for assets denominated in that currency;
this leads to increased demand by investors and causes an increase in the value of the currency
in question. If interest rates go down, this may lead to a flight from that currency to another.

3. Inflation
Changes in the relative inflation rates can affect international trade activity which influences the
demand for and supply of currencies and therefore influences exchange rates.

4. Trade Balance
A country's balance of trade is the total value of its exports, minus the total value of its imports. If
this number is positive, the country is said to have a favorable balance of trade. If the difference
is negative, the country has a trade gap, or trade deficit.
Trade balance impacts supply and demand for a currency. When a country has a trade surplus,
demand for its currency increases because foreign buyers must exchange more of their home
currency in order to buy its goods. A trade deficit, on the other hand, increases the supply of a
countrys currency and could lead to devaluation if supply greatly exceeds demand.

5. Central Bank Actions

A countrys Government can prevent or discourage investment from other countries. By
imposing such restrictions, the Government disrupts investment flows. Among the most
commonly used investment restriction are bureaucratic tangles, projection of intellectual
property right and f\fiscal policy changes. In addition to these, a Government can reduce
its countrys investment by enforcing laws, or a maximum limit that can be invested.

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Relationship of Euro compared to other

countries with US Dollars:
Yearly Average Exchange Rate of Different currencies with respect to US Dollar
Year
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Historical AVG
Stand. Dev

Average EUR/USD

1.06

0.89

0.80

0.81

0.80

0.73

0.68

0.72

0.76

0.72

0.78

0.75
0.79
0.1

Average GBP/USD

0.67

0.61

0.55

0.55

0.54

0.50

0.55

0.64

0.65

0.62

0.63

0.64
0.6
0.05

Average JPY/USD

125.14

115.93

108.16

110.18

116.31

117.77

103.44

93.54

87.71

79.70

79.75

97.62
102.94
15.27

Average AUD/USD
AUD
1.84
AUD
1.54
AUD
1.36
AUD
1.31
AUD
1.33
AUD
1.19
AUD
1.20
AUD
1.28
AUD
1.09
AUD
0.97
AUD
0.97
AUD
1.04
1.26
0.25

Average INR/USD
INR
48.56
INR
46.63
INR
45.27
INR
44.05
INR
45.27
INR
41.21
INR
43.49
INR
48.36
INR
45.72
INR
46.68
INR
53.43
INR
58.64
47.28
4.7

From the table given above it is seen that historical average exchange rate of euro with respect to
U.S. dollar is 0.79 euro per dollar and its standard deviation is 0.10 which is higher than that of Great
Britten pound (GBP) but lower than that of Japanese yen (JPY), Australian dollar (AUD) and Indian
rupee (IRP).
This is shown in the figure bellow:

Standard Deviation of foreign exchange rate of different currency

Average INR/USD

4.70

Average AUD/USD

0.25

Average JPY/USD

15.27

Average GBP/USD

0.05

Average EUR/USD

0.10
-

2.00

4.00

6.00

8.00

10.00 12.00 14.00 16.00 18.00

Stand. Dev

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So it can be said that from this point of view based one decade fluctuations of the mentioned
currencies;
Euro is less stable than GBP but more stable than JPY, AUD and IRP.

Let us now see the percentage change in the values of those currencies that means how these
currencies appreciates or depreciates against dollar during this period:
30.00%
Average EUR/USD

20.00%

Average GBP/USD

10.00%

Average JPY/USD
0.00%
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-10.00%

Average AUD/USD
Average INR/USD

-20.00%

Percentage Change in Exchange Rate From 2003 to 2013

Year

Average
EUR/USD

Average
GBP/USD

Average
JPY/USD

Average
AUD/USD

Average
INR/USD

-16.51%

-8.11%

-7.36%

-16.27%

-3.97%

2004
2005
2006
2007
2008
2009
2010
2011
2012

-9.14%
0.03%
-0.99%
-8.33%
-6.47%
5.19%
5.13%
-4.85%

8.29%

-10.86%
0.81%
-1.24%
-8.07%
9.09%
17.53%
1.12%
-3.69%
1.19%

-6.71%
1.87%
5.56%
1.26%
-12.17%
-9.57%
-6.24%
-9.13%
0.06%

-11.71%
-3.51%
1.18%
-10.04%
0.11%
6.93%
-14.83%
-11.00%
-0.37%

-2.92%
-2.69%
2.77%
-8.97%
5.52%
11.20%
-5.45%
2.09%
14.48%

2013
Average% Change
Stand. Dev. Of
%Change

-3.29%
-2.81%
0.070

1.34%
-0.08%
0.077

22.40%
-1.82%
0.094

7.34%
-4.74%
0.080

9.74%
1.98%
0.072

2002
2003

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10.00%

Axis Title

5.00%
0.00%
-5.00%

200220032004200520062007200820092010201120122013
Average EUR/USD

-10.00%
-15.00%
-20.00%

Axis Title

It is seen from the table that euro got highest appreciation in value with respect dollar in 2003 and it
is almost 16.51% and it got highest depreciation in value with respect to dollar in 2012 and it is
almost 8.21%. It is seen from the table that historically euro appreciates against dollar on an average
of 2.81% every year from 2003 to 2013 whereas average lowest fluctuations in value is shown by
GBP (0.08% appreciation per year) and average highest fluctuations is shown by AUD (4.74% per
year). All currencies except INR have appreciated on an average against dollar during the period.

Average% Change in Value Per Year

Average% Change
1.98%

Average EUR/USD

-0.08%
Average
GBP/USD

Average JPY/USD

Average AUD/USD

Average INR/USD

-1.82%
-2.81%
-4.74%

Now the question is how consistently the value of euro change against dollar over the period. To find
out the consistency of percentage change in value let us now see the magnitude (standard
deviation) of the movements of percentage changes in value of those currencies against dollar
during the period. From the table above it is seen that the standard deviation of percentage change
in value of Euro is lowest among those five currencies. So it can be said that the historical average
appreciation in value of euro against US dollar is more static than that of other four currencies. So
the percentage change in value of euro can be said more consistent than that of other currency
which indicates euro is less stable than other currency.

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Stand. Dev. Of %Change in Vlue per Year

0.070

0.077

Average EUR/USD

Average GBP/USD

0.094

Average JPY/USD

0.080

0.072

Average AUD/USD

Average INR/USD

From the above discussion it can be concluded that from 2003 to 2013 the foreign exchange rate of
euro per unit of US dollar is less stable than that of GBP and more stable than that of JPY, AUD and
INR.

Now let our discussions turn into another way. Up to this level we have discussed relative stability of
exchange rate of euro compare to that of GBP, JPY, AUD and INRwith respect to US dollar during
2003 t0 2013 and we have found that euro's exchange rate with respect to per unit US dollar is
moderately stable. Let us now see which factors may affect this stability and to what extent. To
identify those factors and their magnitude of influence on exchange rate movements, we have taken
some independent variables, that may affect fluctuation, on France, an euro-land country and run a
regression model considering the exchange rate of euro per unit of dollar as a dependent variable.

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The variables taken as independent

variables are as follows:
Variables
1) Inflation, consumer prices (annual %)

Definition
Inflation as measured by the consumer price index
reflects the annual percentage change in the cost to
the average consumer of acquiring a basket of goods
and services that may be fixed or changed at
specified intervals, such as yearly.

2) Interest Rates, Government Securities,

Government Bonds

The Interest Rate paid on government securities

which is considered risk rate of interest.

3) GNI per capita (Current US$)

GNI per capita is gross national income divided by

midyear population. GNI (formerly GNP) is the sum
of value added by all resident producers plus any
product taxes (less subsidies) not included in the
valuation of output plus net receipts of primary
income (compensation of employees and property
income) from abroad. Data are in constant 2005 U.S.
dollars.

4) Tariff rate, applied, simple mean, all

products (%)

Simple mean applied tariff is the unweighted

average of effectively applied rates for all
products subject to tariffs calculated for all
traded goods.

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Year
Yrs
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

Average
EUR/USD
EUR/$

0.89

0.80

0.81

0.80

0.73

0.68

0.72

0.76

0.72

0.78

0.75

Inflation (annual
%)
Inf%

Interest
Rates(%)
Int%

GNI /capita
(cnst.2005=US$)
GNI/cpt

Tariff
rate(%)
TR%

2.11

4.22

33,202.91

2.44

2.13

4.22

33,903.11

2.46

1.74

3.58

34,347.99

2.25

1.68

3.34

35,025.26

2.39

1.49

4.07

35,591.91

2.35

2.81

4.15

35,369.82

2.25

0.09

3.60

34,114.44

2.15

1.53

3.52

34,588.35

1.94

2.12

3.45

35,133.81

1.53

1.96

3.18

34,823.18

1.50

1.88

3.08

33,823.83

1.66

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The table given above shows the observations collected on the variables from 2003 to 2013 on
France. Multiple regressions are run on the variables the output of this regression model is as
follows:

Franc-AUD:

Interpretation
Here number of observations = 11, model sum of squares (mss) = 0.05596,
Model degrees of freedom (df_m) = 4,
R-squared (r2)= 0.876455 There is high positive correlation among the variables. The
independent variables as a whole can explain only 87.64% variation of the dependent
variable.
Adjusted R-squared (r2_a) = 0.7940 & F statistic (F) = 10.641
Prob > F = 0.006844 which is less than 0.05. the model's independent variables
aggregately explain the dependent variable.
Among the independent variables;
Only variable GNI per Capita shows P>|t|= 0.003391 which is less
than 0.05 indicates that its coefficient -7.5 is significant at 95% confident
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level to the dependent variable Exchange rate of euro with respect to per
AUD.
The other independent variables are not significant at 95% level of
significant.
The intercept is 2.80252 shows p value = 0.002582 less than 0.05 so it is
significant at this level.
Therefore, the regression equation will be
Y (EUR/AUD) = 2.80252 + 0.088718X1 + (-0.0546)X2 + (-7.53X3
+ 0.018208X4

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Franc-USD
SUMMARY OUTPUT
Regression Statistics
Multiple R
0.795890623
R Square
0.633441884
Adjusted R Square
0.389069806
Standard Error
0.043676683
Observations
11
ANOVA
df
Regression
Residual
Total

Intercept
Inf%
Int%
GNI/cpt
TR%

4
6
10

SS
MS
0.019779462 0.004944866
0.011445916 0.001907653
0.031225378

Coefficients Standard Error

2.506337863
0.68223483
0.028315736
0.023116344
-0.054577664
0.054439906
-5.12858E-05
1.92324E-05
0.087296769
0.06075101

t Stat
3.673717252
1.224922735
-1.002530469
-2.666629781
1.436959966

F
Significance F
2.59212055 0.142848368

P-value
Lower 95%
Upper 95% Lower 95.0% Upper 95.0%
0.010408122 0.836969377 4.17570635 0.836969377 4.17570635
0.266507361 -0.028247921 0.084879393 -0.028247921 0.084879393
0.354789803 -0.187787315 0.078631986 -0.187787315 0.078631986
0.037193439 -9.83459E-05 -4.22571E-06 -9.83459E-05 -4.22571E-06
0.200758776 -0.061355597 0.235949135 -0.061355597 0.235949135

--------------------------------------------------------------------------

Interpretation
Here number of observations = 11, model sum of squares (mss) = 0.19779,
Model degrees of freedom (df_m) = 4,
R-squared (r2)= 0.6334: There is high positive correlation among the variables. The
independent variables as a whole can explain only 63.34% variation of the dependent
variable.
Adjusted R-squared (r2_a) = 0.3890 & F statistic (F) = 2.5921,
Prob > F = 0.1428 which is greater than 0.05. the model's independent variables
cannot aggregately explain the dependent variable.
Among the independent variables;
Only variable GNI per Capita shows P>|t|= 0.037 which is less than
0.05 indicates that its coefficient -5.1285 is significant at 95% confident
level to the dependent variable Exchange rate of euro with respect to per
dollar.
The other independent variables are not significant at 95% level of
significant.
The intercept is 2.5063 shows p value = 0.0104 less than 0.05 so it is
significant at this level.
Therefore, the regression equation will be
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Y (EUR/USD) = 2.5063 + 0.0283X1 + (-0.0546)X2 + (-0.0000513X3

+ 0.0873X4
Since only variable GNI per Capita is significant at 5% level of significance we can say that
if GNI per capita income increases by 1 dollar the value of euro per dollar will appreciate
against dollar by 0.0000513 euro.

From this output of regression analysis we can say that the stability of euro is influenced by
France's National Income to some extent. Here might some other variables that we could not
count in our analysis have impact on euro's stability because our independent variables can
explained our dependent variable 66.34% and our model is insignificant in aggregate
So as far as stability concern US dollar and British Pound is more stable than Euro. Though
euro shows stability relative to currencies other than US dollar and GBP and though it is
thought that in future euro will be more stable but it is not certain

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FrancJPY:

Interpretation
Here number of observations = 11, model sum of squares (mss) = 27.66,
Model degrees of freedom (df_m) = 4,
R-squared (r2)= 0.3876 There is high positive correlation among the variables. The
independent variables as a whole can explain only 38.76% variation of the dependent
variable.
Adjusted R-squared (r2_a) = -0.0206 & F statistic (F) = 0.9494
Prob > F = 0.49771 which is greater than 0.05. the model's independent variables
cannot aggregately explain the dependent variable.
Among the independent variables;
No variable shows P>|t less than 0.05 indicates that at 95% confident
level to the dependent variable Exchange rate of euro with respect to per
JPY.
The intercept is -5.3446 shows p value = 0.7313 greater than 0.05 so it is
not significant at this level.
Therefore, the regression equation will be
Y (EUR/JPY) = -5.2446 - 0.2943X1 + (-1.13400)X2 + 4.222X3
+ 2.5783X4
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So in this regression model we can say that there is no fluctuation in exchange rate of France due to
above factors. There may be other influential factors that may influence in exchange rate FRAN/JPY
relative to France with Japan.

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FranceINR:

Interpretation:

Here number of observations = 11, model sum of squares (mss) = 2.94505

Model degrees of freedom (df_m) = 4,
R-squared (r2)= 0.6641: There is high positive correlation among the variables. The
independent variables as a whole can explain only 66.64% variation of the dependent
variable.
Adjusted R-squared (r2_a) = 0.4402 & F statistic (F) = 2.965762,
Prob > F = 0.1134 which is greater than 0.05. the model's independent variables
cannot aggregately explain the dependent variable.
Among the independent variables;
no variable P value less than 0.05 indicates relation is insignificant at
95% confident level to the dependent variable Exchange rate of euro with
respect to per INR.
The other independent variables are not significant at 95% level of
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significant.
The intercept is 2.5063 shows p value = 0.0104 less than 0.05 so it is
significant at this level.
Therefore, the regression equation will be
Y (EUR/INR) = 0.04033 + 1.7672X1 + (-0.0006)X2 + (-3.529X3
+ (-0.00417)X4.
France became the largest supplier of nuclear fuel and technology to India and remains a large
military and economic trade partner. India's permanent member aspirations in the UN Security
Council have found very strong support from former French President Chirac. The recent decision by
the Indian government to purchase French Scorpne class submarines worth 3 billion USD and
43 Airbus aircraft for Indian Airlines worth 2.5 billion USD has further cemented the strategic, military
and economic co-operation between India and France.
France also became the first country to do nuclear trade with India after NSG waiver on 30 Sept.,
2008.

Though France is one of the largest trading partner countries of India, France
exchange rate has less fluctuation to Indias one in respect of inflation, interest
rate, GNI, tariff rate. Nevertheless we have found 66.64% variation in the dependent
variable. So there may be other factors of India respective to France which can
influence the exchange rate of FRANC/INR.

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Conclusion:
From the above regression analysis and considering the influential factors we can conclude
that, different countries have different reasons to affect their respective exchange rate. In
case of France there is insignificant relationship with the variables of India, USA and India.
And has a strong relationship with respect to Australia. The factor responsible for this
significant relationship is income. And in case of other 3 countries, there shows insignificant
relationship because there may be other factors like- political risk, environmental effect that
influence the exchange rate movement. But because of our time constraint we could not
conclude that in our study.

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